BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 929|
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                                 THIRD READING


          Bill No:  AB 929
          Author:   Wieckowski (D)
          Amended:  3/31/11 in Assembly
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  3-2, 6/14/11
          AYES:  Evans, Corbett, Leno
          NOES:  Harman, Blakeslee

           SENATE APPROPRIATIONS COMMITTEE  :  6-3, 8/25/11
          AYES:  Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
          NOES:  Walters, Emmerson, Runner

           ASSEMBLY FLOOR  :  54-21, 5/19/11 - See last page for vote


           SUBJECT  :    Debtor exemptions:  bankruptcy

           SOURCE  :     Author


           DIGEST  :    This bill revises and expands the set of 
          specific asset exemptions available to bankruptcy debtors 
          (the 703 exemptions) to generally conform to the exemptions 
          under existing law available to all debtors in California 
          seeking to exempt specified property from enforcement of a 
          monetary judgment (the "704 exemptions").  The bill 
          significantly increases the homestead exemption that is 
          available to all judgment debtors.


           ANALYSIS  :    Existing law provides that in a case under 
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          Title 11 of the United States Code (relating to 
          bankruptcy), all of the exemptions, other than the Section 
          703.140(b) exemptions, are applicable regardless of whether 
          there is a money judgment against the debtor or whether a 
          money judgment is being enforced by execution sale or any 
          other procedure.  The Section 703.140(b) exemptions may be 
          elected in lieu of all other available exemptions, as 
          specified.  (Code of Civil Procedure Section 703.140 (a).)

          Existing law, the 703 exemptions, provide for eleven 
          categories of exemptions, modeled after federal law, which 
          the bankruptcy debtor may elect to use in lieu of the 704 
          exemptions.  Those exemptions include: 

           The debtor's aggregate interest, not to exceed $17,425 in 
            value, in real property or personal property that the 
            debtor or a dependent of the debtor uses as a residence, 
            in a cooperative that owns property that the debtor or a 
            dependent of the debtor uses as a residence, or in a 
            burial plot for the debtor or a dependent of the debtor.

           The debtor's interest, not to exceed $2,775 in value, in 
            one motor vehicle.

           The debtor's interest, not to exceed $450 in value in any 
            particular item, in household furnishings, household 
            goods, wearing apparel, appliances, books, animals, 
            crops, or musical instruments, that are held primarily 
            for the personal, family, or household use of the debtor 
            or a dependent of the debtor.

           The debtor's aggregate interest, not to exceed $1,150 in 
            value, in jewelry held primarily for the personal, 
            family, or household use of the debtor or a dependent of 
            the debtor.

           The debtor's aggregate interest, not to exceed $1,750 in 
            value, in any implements, professional books, or tools of 
            the trade of the debtor or the trade of a dependent of 
            the debtor.  (Code of Civil Procedure Section 
            703.140(b).)

          Existing law, the 704 exemptions, specify 21 different 
          types of property and the conditions under and amount of 







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          which a debtor may claim an exemption from enforcement of a 
          money judgment.  (Code of Civil Procedure Sections 704.010 
          through 704.210.)

          Existing law requires the Judicial Council to adjust the 
          above dollar amounts at every three-year interval ending on 
          April 1 thereafter, as specified, based on the change in 
          the annual California Consumer Price Index for All Urban 
          Consumers, as specified. (Code of Civil Procedure Section 
          703.150.)

          This bill revises and recast the following 703 exemptions 
          so that the exemption's language generally mirrors the 
          corresponding 704 exemption:

           The exemption for household furnishings, household goods, 
            wearing apparel, appliances, books, animals, crops, or 
            musical instruments.

           The exemption for unmatured life insurance contracts.

           The exemption for a cause of action for wrongful death, 
            or an award of damages or a settlement rising out of 
            wrongful death.

           The exemption for a cause of action for personal injury, 
            or an award of damages or a settlement rising out of 
            personal injury.

           The exemption for unemployment compensation payments.

           The exemption for a cemetery plot for the debtor and the 
            spouse of the debtor.

          This bill revises and recast the following Section 703 
          exemptions so that they mirror corresponding Section 704 
          exemptions for specified property, but with an increase in 
          the dollar amount of the exemption:

           The exemption for the debtor's interest in a motor 
            vehicle or vehicles, not to exceed $4,800 (an increase 
            from $2,775 for a single vehicle).

           The exemption for the debtor's aggregate interest in 







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            jewelry, heirlooms, and works of art, not to exceed 
            $5,000 (an increase from $1,150 for jewelry only).

           The exemption for the debtor's aggregate interest in 
            tools, implements, instruments, materials, uniforms, 
            equipment, one commercial motor vehicle, and other 
            personal property (i.e. "tools of the trade") reasonably 
            necessary to and actually used by the debtor or the 
            debtor's spouse in the exercise of their respective 
            professions, not to exceed $6,075 (an increase from 
            $1,750 for tools of the trade, excluding any vehicles).

          This bill adds the following additional exemptions to 
          Section 703 that mirror corresponding Section 704 
          exemptions for the following property:  (1) workers' 
          compensation benefits; (2) public aid or similar aid 
          provided by a charitable organization; (3) relocation 
          benefits for displacement from a dwelling, as specified; 
          (4) financial aid for higher education; (5) public 
          retirement benefits; (6) vacation credits; and (7) service 
          of earnings assignment orders for support, as specified.
          Existing law, the California Constitution, requires the 
          Legislature to protect, by law, a certain portion of the 
          homestead and other property, from forced sale.  
          (California Constitution Article XX Sec. 1.5.)  

          Existing law contains both an automatic and a declared 
          homestead exemption that serve to protect a portion of 
          equity in a debtor's home from creditors. (Code of Civil 
          Procedures Sections 704.710 et seq., 704.910 et seq.)  
          Existing law states that the automatic homestead exemption 
          applies to the principal dwelling in which the judgment 
          debtor, or spouse, continuously resided from the date of 
          attachment of the judgment creditor's lien until a court 
          determination that the dwelling is a homestead.  (Code of 
          Civil Procedure Section 704.710.)  A declared homestead 
          exemption applies, as specified, to a dwelling specified in 
          a recorded homestead declaration.  (Code of Civil 
          Procedures Sections 704.910, 704.920.)

          Existing law sets the amount of the homestead exemption as 
          follows:

          $75,000, unless the judgment debtor or spouse of the 







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          judgment debtor who resides in the homestead is a person 
          described below;

           $100,000 if the judgment debtor or spouse of the judgment 
            debtor who resides in the homestead at the time of sale 
            is a member of the family unit, and there is at least one 
            member of the family unit who owns no interest in the 
            homestead or whose only interest in the homestead is a 
            community property interest with the judgment debtor; or

           $175,000 if the judgment debtor or spouse of the judgment 
            debtor who resides in the homestead at the time of sale 
            is either:  (1) a person 65 years of age or older; (2) a 
            person physically or mentally disabled and as a result of 
            that disability is unable to engage in substantial 
            gainful employment, as specified; or (3) a person 55 
            years of age or older with a limited gross annual income, 
            as specified. (Code of Civil Procedure Section 704.730.)

          Existing law requires the Judicial Council, on April 1, 
          2013, and at each three-year interval thereafter, to submit 
          to the Legislature the amount by which the dollar amounts 
          of the above homestead exemptions may be increased based on 
          the change in the annual California Consumer Price Index 
          for All Urban Consumers.  Those increases shall not take 
          effect unless they are approved by the Legislature. (Code 
          of Civil Procedure Section 703.150(c).)

          This bill increases those exemptions to $150,000, $250,000, 
          and $350,000 respectively.  

          This bill, with respect to the third exemption, increases 
          the qualifying gross income for a person 55 years of age or 
          older from not more than $15,000 to $22,000, and, if 
          married, from not more than $20,000 to $29,000.

           Comments
           
          In a bankruptcy action, exemptions generally allow a person 
          to protect certain types of assets during the bankruptcy 
          process.  If an asset is exempt, the asset can generally 
          not be taken to pay creditor's claims.  The concept behind 
          exemptions is to provide an individual with a minimum 
          amount of property and money that can be used to give 







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          him/her a "fresh start."  Individuals filing bankruptcy in 
          California can choose between two different sets of 
          exemptions: the 703 exemptions or the 704 exemptions.

          The "703 exemptions," located in Code of Civil Procedure 
          Section 703.140(b), consist of eleven categories that are 
          modeled after federal bankruptcy law.  Those exceptions 
          include a "wildcard" exemption of up to $23,250 (consisting 
          of $1,175 plus the unused portion of the $22,075 homestead 
          exemption) that may be applied to any property.  That 
          application is important for those individuals who have 
          little or no equity in a home.   In comparison, the "704 
          exemptions," contained in Code of Civil Procedure Sections 
          704.010 through 704.210, provide 21 different types of 
          exemptions that protect a wider range of property but do 
          not include a "wildcard" exemption to cover unlisted 
          property.  The homestead exemption is also significantly 
          greater, providing a base exemption of $75,000, $100,000 
          for married individuals, and $175,000 for seniors and 
          disabled individuals, as specified.   It should also be 
          noted that the 703 exemptions are specific exemptions that 
          a bankruptcy debtor may elect in lieu of all other 
          exemptions while the 704 exemptions are available to all 
          debtors in California seeking to exempt specified property 
          from enforcement of a money judgment.

          This bill revises, recasts, and expands the set of 703 
          exemptions to more closely resemble the 704 exemptions.  
          This bill also increases the amounts of exemptions for the 
          debtor's motor vehicle, "tools of the trade," and increase 
          the 704 homestead exemption that is available to all 
          judgment debtors, whether in bankruptcy or not.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

           Major Provisions               2011-12     2012-13     2013-14  
           Fund
           Delayed FTB tax          $1,100    $1,500$1,400 General
            collection*







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          Debt collection costs                             Unknown; 
          dependent on the length of                         General
                              time required to receive full payment

          Update homestead                                  Minor, 
          absorbable costs to Judicial                       
          General**
            exemption rates   Council to update and post rates on 
                              their Web site

          *Delayed tax collections of $200 in 2010-11 (for revenue 
           accrued back one year)
          **Trial Court Trust Fund

           SUPPORT  :   (Verified  8/22/11)

          California Labor Federation
          Central California Legal Services 
          Peace Officers Research Association of California 

           OPPOSITION  :    (Verified  8/22/11)

          California Bankers Association
          National Association of Bankruptcy Trustees

           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          over the past few years of severe recession, Californians 
          have been increasingly forced to resort to bankruptcy.  
          Current exemptions under bankruptcy can leave debtors with 
          little left to start their lives over again.  The 
          exemptions for tools of the trade, home equity, and 
          automobiles are currently insufficient.  

          This bill creates a more fair structure between debtors' 
          exemption options under bankruptcy. In particular, when 
          homeowners are at risk of losing their homes, the 
          exemptions should take into consideration the current home 
          values.  Permitting debtors to both stay in their homes and 
          to keep such essential items as tools of their trade and an 
          automobile will allow Californians to retain sufficient 
          assets in order to get back on their feet, get back to 
          work, and recover from financial insolvency








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           ARGUMENTS IN OPPOSITION  :    The California Bankers 
          Association opposes this bill and writes, "This bill 
          relating to bankruptcy exemptions, unless it is amended to 
          remove the dramatic increases to the homestead exemptions.  
          These exemptions were significantly increased on January 1, 
          2010; however your measure doubles these recently enacted 
          exemption levels.  In addition, these increases are 
          unnecessary and circumvent a report from the Judicial 
          Counsel regarding a consumer price index recommended change 
          due by April 2013.

          "In January 2010, California increased its homestead 
          exemption from $50,000 to $75,000 for a single person; 
          $75,000 to $100,000 for a family unit; and from $150,000 to 
          $175,000 for seniors and the disabled.  Those increases 
          were accompanied by a mechanism for review every three 
          years by the Judicial Council of the homestead exemption 
          for increases due to inflation.  The Judicial Council is 
          currently scheduled to provide its first review in April 
          2013.  This bill circumvents this new statutory system by 
          doubling the recently increased homestead exemptions to 
          $150,000 for a single person, $250,000 for a family unit, 
          and $350,000 for seniors and the disabled.  In 2010, only 
          three percent of all Chapter 7 cases filed identified 
          assets exceeding allowable exemptions, thereby permitting 
          bankruptcy trustees to compensate unsecured creditors.  The 
          doubling of the homestead exemption proposed in AB 929 
          dramatically extends bankruptcy exemptions, shielding 
          hundreds of thousands in assets from recovery by creditors. 
           Unsecured creditors that will be negatively impacted by 
          the proposed doubling of the homestead exemption include 
          not only unsecured lenders, but also the State of 
          California, small business, medical providers, contractors, 
          and other entities that expect payment from the debtor.  
          For example, in 2010 California bankruptcy trustees made 
          priority claim payments under Chapter 7 asset cases to the 
          California Franchise Tax Board of approximately $37.5 
          million and $12.4 million to the State Board of 
          Equalization.  While most taxes are not dischargeable under 
          bankruptcy law, the proposed doubling of the homestead 
          exemption in this bill impedes and delays the collection of 
          these tax debts to the state, imposing significant General 
          Fund pressures."








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           ASSEMBLY FLOOR  : 
          AYES: Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, 
            Blumenfield, Bonilla, Bradford, Brownley, Buchanan, 
            Butler, Charles Calderon, Campos, Carter, Cedillo, 
            Chesbro, Cook, Davis, Dickinson, Eng, Feuer, Fong, 
            Fuentes, Galgiani, Gordon, Hall, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jones, Lara, 
            Bonnie Lowenthal, Mendoza, Miller, Mitchell, Monning, 
            Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Smyth, 
            Solorio, Swanson, Torres, Wagner, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NOES: Achadjian, Conway, Donnelly, Fletcher, Beth Gaines, 
            Garrick, Gatto, Grove, Halderman, Harkey, Jeffries, 
            Knight, Logue, Mansoor, Morrell, Nestande, Nielsen, 
            Norby, Olsen, Silva, Valadao
          NO VOTE RECORDED: Alejo, Furutani, Gorell, Hagman, Ma


          RJG:do  8/29/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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